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Information about China101

Published on December 7, 2008

Author: wmechem



Excellent China outsourcing primer by David Gilbert

China 101 Facts, Trends & Opportunities David Gilbert - January 2008

China 101 Key facts • Full Name – People’s Republic of China (PRC) • Population - 1.3 billion (July 2007 UN estimate) • Size - 9.6 million square kilometers • Capital – Beijing (14 million people) • Languages - Mandarin (mainland 70%), Cantonese (Hong Kong) & local dialects • Politics - Communist (president Hu Jintao) • Army – 2.5 million troops, nuclear capability • Environment - Pollution “like no other” • Living Standards – Vast gap between rich & poor • Education - 400,000 technical graduates pa. • Economic Growth - 8-10% annually approx. • National Sport – Ping Pong

China 101 Geography – Tier 1&2 cities Tier 1 Beijing (Capital) Shanghai Hong Kong Tier 2 Chengdu Hangzhou Guangzhou Ji’nan Nanjing Shenyang Shenzhen Tianjin Wuhan Xi’an

China 101 Great Wall

China 101 Political situation • Chinese Communist Party (CCP) – Slowly becoming more democratic under the principle of “democratic centralism” – Issues with corruption at lower levels • “1 Country, 2 Systems” – Hong Kong / Taiwan / Tibet tensions ongoing • Media censorship & monitoring extensive • Maoism has a strong hold in peoples’ minds • Respect of basic human rights still a concern

China 101 When Yes means No! (or Yes or Maybe!) Old vs New 10 Years vs 1000 Years Learning vs Memorising “Freedom” vs “Harmony” Independence vs Family / Collectivism Goal orientated vs Process orientated Knives & forks vs Chopsticks Understanding is the key to avoiding confusion - respect each others cultures & do not expect change

China 101 Beijing 2008 Olympics • China’s big coming out party • Chance to impress world & improve image • Vast area of Beijing cleared to make way for Olympic park - effectively rebuilt city • $40bn cost (official estimate)

China 101 Nanjing

China 101 Innovation • Many people regard China as a copycat – However innovation arbitrage is a global phenomenon; ideas and models are adapted for local markets • Currently little/no disruptive innovation – Chinese innovation will emerge in sectors suited to the demands of China’s market • Already strong in – IM (70% penetration – used more than email) – P2P streaming (few IP restrictions) – Mobile (over 520m mobile users in China) – Online gaming & virtual goods

China 101 Web companies to watch * images from “An Overview of Web Innovations in China” by Tangos Chan - China Web 2.0 Review

China 101 Temple of Heaven

China 101 Outsourcing trends • Chinese outsourcing market is growing at approx 30% annually [IDC] • India is leveraging China for low-cost outsourcing • Outsourcers are spreading risks by choosing a number of geographic locations based on cost, quality and markets • Chinese firms will be creating major new market opportunities in the next few years by strategically acquiring business outsourcing companies • Many Asian-Pacific headquarters across industries are currently relocating to China from places like Australia, Hong Kong, and Singapore

China 101 Outsourcing opportunities • Using China-based outsourcers can result in savings of around 37% over comparable India- based companies [PricewaterhouseCoopers] • Foreign clients account for just 10% of total revenue currently [McKinsey] • There are no clear market leaders yet • Outsourcing service providers could generate $56 billion in revenue and create 4 million jobs by 2015 [EDS] • China is India’s major challenger - the government, clients and suppliers are discovering and developing China as outsourcing destination

China 101 Interesting facts • Infosys has committed to spending $65 million over the next five years to build consultant campuses in China • Salary level of an engineer in 2nd tier cities around $250+ a month ($500+ in Beijing/Shanghai) • Japanese clients account for about 60% of the non-domestic outsourcing work in China (US/EU 22%) [Analysys International] • Companies such as Accenture, IBM, Hewlett- Packard, and Indian vendors Wipro and Tata Consultancy Services are ramping up in China

China 101 Wuhan

China 101 Pros of outsourcing to China • People - abundant supply of raw talent (largely untapped in second-tier cities) • Education - good universities provide strong training and basic skills • Language - English and communication skills are swiftly catching up • Infrastructure - more robust than India (roads, water, electricity, bandwidth, office space…) • Cost – up to 5x cheaper than US, 2x than India with tax incentives for “clean industries” • Law – new laws protect private ownership, IP & public/private or foreign/domestic partnerships

China 101 Cons of outsourcing to China • Communication - English skills uneven • Quality - graduate skills uneven • Intellectual Property - poor protection • Time Zone - GMT+8 (9am UK, 5pm CN) None of these are insurmountable but require careful attention – the main solution is training

China 101 Recommendations • Gain a clear understanding of the Chinese law and government policies associated with foreign business activities • Find local partner(s) • Establish comprehensive contractual terms • Conduct a trial project before transferring critical work to any outsourcing partner • Periodically reassess the relationship and monitor stability of the political environment • Be Chinese (be patient!)

China 101 Lama Temple

China 101 Conclusions • China & India likely to dominate the next decade in terms of providing low-cost labour and key technology skills • The challenge is to overcome language / cultural / IP concerns • Market opportunities will continue to grow

China 101 Further reading • The China Vortex - • China Web 2.0 Review - • China Law Blog - • China Economics Blog - • China Success Stories - • All Roads Lead to China -

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